Claims that surfaced on Monday suggesting Apple had cut iPad 2 orders for the fourth quarter have reportedly been confirmed. JP Morgan analysts Mark Moskowitz and Gokul Hariharan wrote in a note to investors on Monday that Apple had reduced its fourth-quarter iPad 2 orders from 17 million to 13 million units, suggesting that demand for Apple’s market-leading iPad might finally be waning. Some speculated that a portion of iPad production may have moved to Foxconn’s new factory in Brazil while others suggested that the report was not accurate, and JP Morgan’s Moskowitz would later issue a second note backtracking on the firm’s earlier statements. But should he have been so quick to fold? Read on for more.
Goldman Sachs analysts Liang-chun Lin and Bill Shope each claim to have independently confirmed the fourth-quarter production cuts for Apple’s slate. Channel checks performed separately by each of the analysts indicate that iPad shipments in the fourth quarter are now expected to fall between 13 million and 14 million units, below the firm’s earlier estimate of 15.4 million. ”Overall, the data points suggest some slack iPad supply, at both the production and component level,” Lin wrote.
The production cuts suggest a possible decrease in end user demand, however Goldman’s Shope believes that is an unlikely scenario. Instead, the analyst thinks Apple likely increased orders dramatically ahead of the holiday season and is now dropping production down to normal levels. Shope also suggested that Apple may instead be controlling iPad 2 manufacturing very closely in preparation for an iPad 3 launch in early 2012. The firm still sees Apple shipping between 28 million and 30 million iPads in the second half of 2011.
“We believe a demand-centric bear case on Apple’s stock will quickly disintegrate in the face of multiple October product catalysts (next gen iPhone, iOS5, and iCloud), remarkably strong September quarter results, and what we expect to be solid iPad, Mac and iPhone momentum in the December quarter,” Shope wrote in his note. Goldman Sachs reiterated its $520 price target on Apple stock with a Conviction Buy rating.
